How the Gig Economy Is Disrupting Payroll

Payroll processing in the 'good old days' was a fairly simple matter. Employees filled out paper time sheets they turned in at the end of the week. A couple of days later, the boss would hand them a wad of cash along with a paper paystub. It was fast, clean, and easy. Things have certainly changed since then.

Not only do employers very rarely use paper paystubs and cash transactions anymore, but they also have to be a lot more careful about who they pay, how much they pay, and how they report it all. It is not made any easier by the emerging gig economy. To say the gig economy is disrupting payroll is like saying the sky is blue. Everybody knows it.

The Gig Economy – A Brief Description

What is a gig economy? It gets its name from the practice of musicians being paid only when they perform. Every performance is considered a gig, and every gig is worth a paycheck.

The gig economy of 2018 is by no means limited to the creative arts. In fact, you can find gig workers active in just about every sector of the economy. Take tech consultants, for example. A self-employed consultant who handles projects for 25 to 30 different clients per year gets paid by each one individually. That consultant is working on a gig basis.

Gig workers run the gamut from ride-sharing drivers to food delivery personnel and people who walk dogs and run errands. The one thing that ties them all together, as opposed to more traditional contract work, is technology.

Many of today's gig workers rely on mobile apps to find work. They do not really work for the companies behind those apps, nor do they work for the customers who actually benefit from their services. They work for themselves. They offer themselves as service providers to entities on both sides of the supply chain.

Tax Implications of Gig Work

The gig economy is affecting payroll inasmuch as gig workers still have to pay income taxes and FICA. The only question is one of how those taxes are paid. In the simplest possible terms, gig workers are self-employed unless they have made other arrangements with the companies whose services they provide.

As self-employed workers, they are required to handle income tax and FICA on their own. No withholding is applied to the money they make on each gig. Having said that, this is not an exact science. Gig workers may actually qualify as standard employees if the circumstances of what they do line up with certain IRS guidelines. As you might imagine, this can cause nightmares for employers.

Gig Work and Employee Benefits

The gig economy is presenting another problem for employers and gig workers by way of benefits. Are gig workers entitled to things like health insurance and workers’ comp? That is still open for debate.

A California court recently ruled in favor of employers by saying that their gig workers are not entitled to company benefits. The court’s reasoning was as follows: gig workers supply services to both companies and the customers those companies serve. As such, neither group employs them. They are simply offering on-demand services and being paid for doing so.

The gig economy is transforming America's business environment. It is also affecting payroll processing. It is yet another reason that outsourcing your payroll to a partner like us might be a great solution for you.